Sara Lee deal seen as key step in Bimbo’s journey in US baking

12/1/2010
- by
L. Joshua Sosland and Dan Malovany

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To Gary Prince, businesses are “journeys in time” requiring the willingness as well as the ability to adapt to sometimes dramatic change and daunting challenges. In his position as president of Bimbo Bakeries USA (BBU), Horsham, PA, Mr. Prince regards the acquisition of the North American Fresh Bakery business of Sara Lee Corp., Downers Grove, IL, as a crucially important step toward achieving success in today’s difficult environment.

Mr. Prince spoke with Sosland Publishing days after Grupo Bimbo S.A.B. de C.V. announced on Nov. 9 an agreement to buy the Sara Lee baking business.

Although he has been with the company for less than two years, Mr. Prince has been involved with many of the properties owned by Bimbo for considerably longer. He began his career and spent almost 35 years with George Weston Ltd. He was named president of BBU in 2009 with the acquisition of the fresh baking business of Weston.

Even though the integration of the Weston baking businesses into BBU has been highly successful, Bimbo did not completely dodge the travails hitting the baking industry broadly during the past two years. Like every major baking company, Bimbo has experienced pressure on its earnings in recent quarters, battling high ingredient prices and pressure on selling prices.

Mr. Prince spent much of the interview speaking about how the environment for baking has changed in recent years and steps he said Bimbo will take to ensure success.

He particularly emphasized the gap he sees between how grocery retailers and baking companies have changed in the past several years. For Bimbo or any other baking company to survive in the years ahead, he said major capital infusions into an aging production infrastructure will be required.

“The industry is an old industry,” he commented. “For Bimbo, we must invest significant capital to update the asset base in our new footprint. We are committing as part of this deal $1 billion to do just that, which is good for the industry.

“Frankly, I don’t think you have any choice in this world,” he continued. “Update and identify your purpose or be destined to struggle.”

Asked how Bimbo will be different five years from now, Mr. Prince said “innovation” will be the guiding principle.

“We must be a much more productive company with sharpened strategies, wherever our footprint takes us, because that’s what matters most in today’s world,” he said.

Referring to retail customers, Mr. Prince said baking would do well to emulate certain supermarket practices.

“Our customers build new stores all the time and remodel stores every year,” he said. “I think it’s important for us as an industry to build new bakeries and remodel every year because productivity is very important in this industry. Not everyone will do that. You have to have real conviction and commitment to this industry. And we do.”

Mr. Prince said the need to update baking’s production infrastructure should not be confused with the issue of excess capacity currently ruling in the industry.

“It’s not about capacity at all,” he said. “It’s about being more productive. Survival is about being a more productive company. You can’t run old bakeries and old equipment in today’s world. The consumer and the customer just demand more. I don’t want excess capacity. However, I will always have capacity available to grow. That’s not excess capacity.”

Asked why Bimbo believes it will succeed when Sara Lee struggled, Mr. Prince said a combination of factors gives him confidence, beginning with focus on the core business and a strong innovation pipeline. “We’re singularly focused on baking, number one,” he said. “Baking is what we do so we have to be very good at it, and we have to invest back into our business every year. We should put at least half of our cash back into our business every year.

“Kraft, General Foods, Bestfoods, Unilever, Anheuser-Busch, Ralston and now Sara Lee are all multinational companies that participate in food categories and that at one time or another became involved with baking,” he continued. “History shows that they were not truly committed to this industry. Now, Sara Lee has decided to exit the fresh baking business, which is not unlike what the others have done over the years.”

Underscoring his enthusiasm for baking, Mr. Prince chafed when it was noted that with Weston he was twice with a company that sold a large portion of its baking portfolio.

“I wasn’t the seller,” he said. “I worked for a company that sold Weston Baking. I happen to be the leader of that business, but I wasn’t the owner. Bimbo is singularly focused on baking, and Weston was not.

“Another reason I think we will succeed is that these businesses are very complementary,” he continued. “We’re in the variety business, and Sara Lee is focused on family products like mainstream white bread. Sara Lee built a great franchise in the Sara Lee brand, and that’s a tough piece of work. They have done it very successfully in the last half a dozen or so years. It’s a great property. The bakery system is quite complementary as well. The reality is we don’t have a big business in the Southeast. We don’t have a big business in the Midwest. Sara Lee has a presence in those geographies. Putting the complementary brands and assets together creates the path forward for us.

“The combination is going to be even more productive than either company would be on a stand-alone basis, and it’s almost that simple,” he added. “But that can’t be done without an infusion of cash.”

The combination of the US baking businesses of Bimbo and Sara Lee will create what is by a significant margin the largest US baking company. Yet Mr. Prince said creating greater scale was not what made the combination appeal.

“This is not about big at all,” he said. “We were already big. This is about being a productive company. Rather than looking at this as a large company, I see it as the bringing together of Metz, Mrs Baird’s, CooperSmith, Stroehmann’s, Oroweat and all of our other great regional brands. Each of these businesses just has to be more productive, and the combination of the two companies allows that to happen.”

Even if scale was not a key motivator, Mr. Prince recognized the advantage of creating what will be the first baking company that truly will have a footprint across all 48 states. The value of this has been enhanced by the emergence Mr. Prince referenced earlier of several food retailers with national footprints.

“Our customers dot the country, large national customers starting with Wal-Mart, Sam’s and Costco,” he said. “Of course, the regional retailers are also demanding more of suppliers. Our customers are looking for solutions, and we can bring solutions to every region of the country.

“Our products will be available in every city and town in the country, and we garner the support of our customers through excellent service, fresh products and good value,” he continued. “And our customers demand all of that.”

Although the national footprint represents a milestone for US baking, Grupo Bimbo’s reach, as the largest baking company in the world, is far wider still.

“Our roots are in Mexico to start with,” Mr. Prince said. “We’re a young baking company. We’re 65 years old, and as bakery businesses go, that’s young. We have a developing business in the Americas, we have a small footprint in China, and we’re singularly focused on baking so if you want to grow, you have to do it in baking. You can grow organically in your core markets, which we are doing, and you can do it through expanded acquisitions, which we also have an interest in doing. We must be more productive in every region of the world. We’re bakers at the end of the day. That’s all we do. We focus on being the best at what we do.”

Without detailing how BBU will be structured following the Sara Lee acquisition, Mr. Prince said not all top executives will have offices in Pennsylvania.The company’s headquarters in Horsham are about 15 miles north of downtown Philadelphia.

“While our corporate office is in Horsham, you can’t run the company from there,” he said. “Instead, it is leadership in every region of the country that will make us successful. The leadership is critical, obviously, and a collection of skill sets is all businesses are. I’m thrilled with the opportunity to put the leadership of these two businesses together and team them with associates in the field. Because of the complementary nature of these businesses, the combined leadership is where the value is created.

“We really value the Sara Lee team, and we look forward to them joining the BBU in building a great baking company in every region of the country,” he continued. “We want this to be an extraordinary place to work. We’re forward looking and innovative. We want to be our customers’ preferred supplier, and we want leaders who understand that. With our singular focus on baking, I think BBU will continue to be a great place where people can build careers and build families, which really is security for the long term.”

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